Adventures in Economics: An Interview with Richard M. Ebeling

(This interview appeared in the February 2011 issue of the "Lara-Murphy Report," published by the United Services & Trust Corp., Nashville, Tennessee, www.usatrustonline.com)

Austrian Economics – “Then” and “Now”

Lara-Murphy Report: You have spent your whole career promoting and teaching Austrian economics—in fact, one of us is a former Ebeling student! From your perspective, what has happened with the Austrian movement as a whole? What would you say to today’s young libertarians and Austrians, who take it for granted that the average person on Wall Street has probably at least heard of Austrian business cycle theory?

Richard Ebeling: When I first became interested in Austrian Economics as a teenager back in the 1960s, there was virtually no Austrian School – most certainly it was not mentioned in the classroom. Keynesian Economics was riding high, with its argument that only Big Government could keep the economy on an even keel through manipulative monetary and fiscal policy. And socialist central planning was considered the ideal for “third world” countries to rise out of poverty; it was also said to be a good thing if more government control, regulation, and income redistribution could be introduced here at home in America, as well.

This was the message that I was getting from all my undergraduate professors while I was studying economics. To speak up in my classes and suggest the relevancy and importance of the ideas of the Austrian Economists was to invite ridicule, sarcasm, and verbal attack from both professors and fellow students. The attitude was that the Austrian argument for a free and competitive market process was out-of-date and as dead as the Dodo bird.

I had to learn all my real economics understanding by reading on my own. That is how I found out about and came to appreciate the ideas of those earlier, leading members of the Austrian School – Carl Menger, Eugen von Böhm-Bawerk, Ludwig von Mises, and Friedrich A. Hayek.

I had the luck to be invited to a unique Austrian Economics conference sponsored by the Institute for Humane Studies in June 1974, where I had the wonderful opportunity to meet Murray Rothbard, Israel Kirzner, Ludwig Lachmann, and Henry Hazlitt, and a handful of other young people who, like myself, had discovered the Austrian tradition on their own (many of whom are prominent members of the Austrian School today).

More than thirty-five years later the world is a very different place. There are colleges and universities where a student can take courses in Austrian Economics, and even study Austrian Economics as a specialized field in an economics graduate program, such as at George Mason University in Virginia.

Every year I teach a course on Austrian Economic Theory at Northwood University in Midland, Michigan, as well as incorporating Austrian ideas into all my other classes, as part of an economics department that is free market and Austrian “friendly.”

There are Austrian-oriented institutions and think tanks, such as the Ludwig von Mises Institute in Auburn, Alabama, for instance, that offers a vast print and online library of all the great works of the Austrian Economists, and where an interested student can attend conferences on Austrian ideas. Excellent online courses are regularly offered (including by Bob Murphy) and online articles are published virtually everyday applying Austrian ideas to contemporary economic policy issues for an increasingly worldwide audience.

And there are vibrant and challenging Austrian blogs such as “Coordination Problem” and “ThinkMarkets.”

Most certainly, the current economic crisis has served as a powerful catalyst for economists and business analysts to find in the Austrian theory of money and the business cycle a clear, coherent, and empirically relevant explanation of how government manipulation of interest rates and monetary expansion create the distortions and imbalances throughout the economy that set the stage for an inescapable recession following a false boom. It has provided a far better explanation for understanding how we got in to the present mess, and why only allowing the economy to self-correct can put America back on the path of a well-coordinated and sustainable market system of freedom and prosperity.

These are wonderful times to be an Austrian Economist. The insights and contributions of great Austrian thinkers, like Mises and Hayek, are helping to clear away the intellectual rubble and misguided policies created by Keynesian and collectivist ideas.

Trends Can Change – They Have in the Past and They Will in the Future

LMR: Ironically, just when it seems everything is finally clicking for those who are interested in spreading the ideas of liberty, the U.S. government at least seems to be accelerating its slide into a form of corporatism, if not outright socialism. You have studied the history of liberty quite extensively. Is our pessimism accurate, or does every generation of liberty-lovers think they face the worst threat ever?

RE: Ludwig von Mises always emphasized that “trends can change.” He pointed out that they have changed in the past and will most likely do so again in the future. One of the most frustrating, yet promising things in life is that the future always has an element of unpredictability.

I lived a good part of my life, like many of us, in the shadow of the Cold War. As an economist I understood why socialism could not and did not work as an economic system, and why a socialist economic system always resulted in political tyranny and loss of personal freedom.

But who among us, who lived through that time, really expected to see the end of the Soviet Union in our lifetime – unless it came about either through a terrible and bloody civil war within Soviet Russia or through a catastrophic global nuclear war? And, yet, in the late 1980s and early 1990s, the contradictions and corruptions of the Soviet system began to unravel. And within a few, short years the Soviet system imploded, and only with the loss of a relatively small number lives of brave souls during those last years.

I was in the Soviet Union working as a consultant on market reform and privatization 1990-1991, and I saw with my own eyes heroic Lithuanians in Vilnius and Russians in Moscow who died fighting for freedom against Soviet tyranny. But on the whole, Soviet socialism went out with a whimper, and not a huge bloody bang. Who, honestly, predicted that this great change would happen this way, at that time?

In Human Action, Ludwig von Mises refers to the “reserve fund” of wealth and capital in a prosperous society that a plundering government can draw upon for a long time, to feed its gluttonous drive for power and to provide the favors and privileges for special interest groups that keep the political elite in control.

But the reserve fund of private sector wealth for the government to eat from finally and inevitably must reach its end, Mises argued. That is, very possibility, what we are witnessing here in the United States and some other parts of the world today. America and countries in Europe are facing major fiscal crises caused by blood sucking taxes, crushing government debt burdens and huge unfunded liabilities adding up to tens of trillions of dollars (such as social security and government healthcare programs), strangling regulations that hinder competition and innovation, and inflationary misdirection capital and labor that throw market supplies and demands out of balance.

If we are at such a turning point – such a change in trends – what will be crucial in determining the direction it all takes will be the power and influence of the ideas that explain to our fellow citizens how the crisis has come about, why government is no longer – and never was -- the answer; and why a reborn system of individual liberty and free market capitalism is essential in the decades to come.

The responsibility of making that case falls upon all of us who care about liberty.

Austrian Economics Helps Explain How the Real World Works

LMR: In the previous question, we said it was “ironic” that the growing popularity of the Austrian and libertarian movements is occurring precisely as the federal government and Federal Reserve amass more powers. But is this actually to be expected? In other words, does the public not bother to worry about “abstract” things such as economic freedom and civil liberties, when the nation is at peace and the unemployment rate is 3%? Are Americans only now looking to the Austrians because they might be able to avert the brewing disaster?

RE: Perhaps it is a part of human nature to often take the psychological attitude that, “if it ain’t broken, it don’t need fixing.” And for decades, in spite of the occasional inflationary boom and bust cycle, it seemed to many that the American interventionist-welfare state was both desirable and sustainable. The current fiscal crisis that is hitting both the Federal government and the majority of state governments across America is forcing people, as voters and taxpayers, to rethink not only what government can afford to do, but also what it is government should do.

An essential part of this rethinking about the role of government in society is understanding why politicians and bureaucrats have neither the wisdom nor the ability to manage a complex and ever-changing market order in which multitudes of millions of people interact and coordinate their diverse wants as consumers with their abilities and talents as producers.

The Austrians, more than most other economists, have demonstrated beyond any doubt that only a functioning and free market economy can provide the means for achieving this coordination through a price system that tells the truth about the changing conditions of supply and demand, and leaves people at liberty to competitively discover and take advantage of mutual gains from trade that results in rising standards and qualities of living for all in the long run.

Whether the growing number of Austrian Economists can succeed in helping to stop this massive monetary and fiscal madness before it becomes the disaster to which it must otherwise lead, only the future will tell. But either way, there is only one path back to freedom and prosperity: radically reducing the size and intrusion of government into our personal lives and market activities; drastically cutting state and federal taxing and spending and eliminating the interventionist-welfare state; and ending our system of monetary central planning by abolishing the Federal Reserve, and returning to a commodity-backed monetary system such as the gold standard, along with the total privatization of banking and the financial system.

The Austrians offer the clearest and most persuasive arguments, in my view, as to why and how this needs to be done.

The “Lost Papers” of Ludwig von Mises, and Their Significance

LMR: For our final question, could you give the highlights of your famous acquisition of Ludwig von Mises’ “lost papers”? Many of our readers might not realize that you are a real-life Indiana Jones.

RE: Actually, I’m a big fan of those Indiana Jones movies, so thank you for that comparison and complement!

Ludwig von Mises, as many of your readers may know, was one of the most influential Austrian Economists of the twentieth century. He explained why socialist central planning could not work; why government intervention leads to insoluble distortions that prevent markets from effectively functioning; and why government monetary manipulation is the source of the booms and busts of the business cycle.

He lived and worked in Austria through much of the 1920s and 1930s, and was viewed as a forceful enemy of both Soviet socialism and German Nazism. By the time Hitler invaded Austria in March 1938, Mises was teaching in Geneva, Switzerland, but he had kept part of what had been his old apartment in Vienna. The Nazis came looking for him at that apartment. He was safe in Geneva, but they boxed up and took away all his papers, correspondence, manuscripts, and family and professional documents. For the remainder of his life, he believed the Nazis had destroyed all of these materials.

In fact, they ended up in a small town in Bohemia, where the Nazis stored all the vast collections of papers, documents and archival materials that they plundered from all the countries they occupied during the war. This huge cache of material was captured by the Soviet Army at the close of the war, and ended up being housed in a special KGB archive in Moscow that Stalin ordered to be built in the late 1940s. And there they remained, closed to every one except the Soviet secret police and the Soviet foreign ministry until the 1990s.

My wife, Anna, and I found out in 1996, that Mises’ papers had survived the war and were in this archive. Anna is originally from Moscow and, using her friends and contacts in the post-Soviet government, arranged for us to gain access to Mises’ papers in this archive. We spent nearly two weeks in October of 1996 going through Mises’ papers, which turned out to be around 10,000 pages of materials, and returned to the U.S. with photocopies of virtually the entire collection.

Liberty Fund of Indianapolis contacted me shortly after our return, and offered to publish a selection of these papers. I have served as the editor of this project, overseeing the translation process and editing the papers for publication in a three-volume set under the title of the Selected Writings of Ludwig von Mises. Two of the three volumes have already been published, and the third volume should be out by late 2011 or early 2012.

It gives a unique insight into Mises, not as the grand theorist of the free market and critic of socialism, interventionism, and inflationism. But, instead, we see Mises as the detailed economic policy analyst during the years before and after the First World War when he made his living as a senior staff member as the Vienna Chamber of Commerce. For those who sometimes wonder, “Well, how do you apply Austrian Economics to the real world of economic policy and practice?” Here is it, by the leading voice of Austrian Economics during the last one hundred years.

Preparing these papers for publication has been one of the most thrilling and rewarding experiences of my long years as an economist.